Credit union lending slumps to 15-year low

According to the Irish League of Credit Unions’ review, loans fell by €166m

Ed Farrell, chief executive of the ILCU, says that stimulating demand for lending is one of the credit union sector’s greatest challenges at present. Photograph: Frank Miller

Ed Farrell, chief executive of the ILCU, says that stimulating demand for lending is one of the credit union sector’s greatest challenges at present. Photograph: Frank Miller

 

Lending by Ireland’s 354 credit unions slumped to a 15-year low of €3.5 billion in the 12 months to June 2015, due to a combination of reduced demand and lending restrictions imposed by the Central Bank.

However, with some €5.5 billion in available funds ready to lend to members, the movement is hopeful that an upturn is on the way.

According to the Irish League of Credit Unions’ annual review, loans fell by €166 million, or 4 per cent in the year to June 2015, down to €3.5 billion. The last time credit union loans were at such a level was in 2000.

Challenges

“We need loan income to grow,” he says, adding that given the restructuring that has taken place in the movement, “it’s now about normal business resuming”.

There are signs of improvement, albeit moderate. About a third of credit unions grew their loan books during the period, up from 68 in 2014 and 29 in 2013, while in the three months to June 2015, loans were up slightly, growing by 0.06 per cent or €2 million.

The average new loan in 2015 was €3,359, up from €3,029 in 2014, but far less than the €8,000 reported in 2007. Credit unions in Dublin issued the most new loans, with €374 million in 2015, followed by Cork, with €172 million. Again, this is considerably less than the €988 million and €610 million, respectively, reported last year.

Lending restrictions imposed by the Central Bank on about 50 per cent of credit unions have been a factor in reduced lending. As more credit unions see the restrictions eased, Mr Farrell says, it should feed into an upturn in lending going into the last quarter.

Total assets among the 354 credit unions affiliated with the ILCU in the Republic rose by 4 per cent to €13.2 billion in the year to June 2015, with deposits also up by 4 per cent to €11.1 billion. Nine out of 10 credit unions reported an increase in savings in the three months to June 2015.

Credit unions also reported a 6 per cent rise in capital reserves to €2.1 billion, with excess capital of some €769 million. Some 202 credit unions now have a capital assets ratio of 15 per cent, far in excess of the 10 per cent required.

Loan arrears are also in decline, falling from 16.1 per cent in 2014, to 14.1 per cent in June 2015. However this is in excess of the “benchmark” 5 per cent arrears rate the ILCU would like to see.